CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS

the FACTS For those less familiar with the SEGA SAMMY Group, beginning by reading this section is advisable. It includes basic information on the business lines of the Group and the business conditions it faces. DEFINITION OF TERMS Fiscal 214 refers to the fiscal year ended March 31, 214, and other fiscal years are referred to in a corresponding manner in this annual report. CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS Statements in this annual report regarding the plans, estimates, beliefs, management strategies, perceptions, and other aspects of SEGA SAMMY HOLDINGS INC. ( the Company ) and its SEGA SAMMY Group Companies ( the Group ), including SEGA CORPORATION and Sammy Corporation, are forward-looking statements based on the information currently available to the Company. Forward-looking statements include, but are not limited to, those statements using words such as believe, expect, plans, strategy, prospects, forecast, estimate, project, anticipate, aim, may, and might, and words of similar meaning in connection with a discussion of future operations, financial performance, events, or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management s assumptions and beliefs in light of the information currently available to management. The Company cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore you should not place undue reliance on them. You also should not assume that the Company has any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. The Company disclaims any such obligation. Actual results may vary significantly from the Company s forecasts due to various factors. Factors that could influence actual results include, but are not limited to, economic conditions, especially trends in consumer spending, as well as currency exchange rate fluctuations, changes in laws and government systems, pressure from competitors pricing and product strategies, declines in the marketability of the Group s existing and new products, disruptions to production, violations of the Group s intellectual property rights, rapid advances in technology, and unfavorable verdicts in major litigation. [This annual report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.] ANNUAL REPORT 214 C2

ANNUAL REPORT 214 SEGA SAMMY HOLDINGS Contents Key Points of Financial Results by the Numbers SEGA SAMMY in 213 A Message from Management Segment Information Looking back with a Key Person game for Bakemonogatari Making of ATLUS.CO.,LTD into a subsidiary Latest News Group Information From April 1, 213 to March 31, 214 SEGA SAMMY HOLDINGS INC. Stock Code 646 Summer Edition the FACTS Communication Tools To further understanding of the SEGA SAMMY Group among shareholders, investors, and a wide range of other stakeholders, the Group upgrades its communication tools continuously. INVESTORS Annual Report 214 Annual Report 214 enables shareholders and other investors to assess the SEGA SAMMY Group s potential for sustained corporate growth over the medium-to-long term by presenting information disclosed pursuant to laws and listing regulations based on past, present, and future timeframes. Furthermore, while explaining the Group s growth scenarios, the report clarifies the interconnectedness of information. Also, we use the unique freedom of voluntary disclosures to provide more information on such areas as intangible assets. Online Annual Report 214 An HTML version of Annual Report 214 is available on the investor relations (IR) page of the SEGA SAMMY HOLDINGS web site. Online Annual Report 214 http://www.segasammy.co.jp/english/ir/ar214/ Web Site IR Page On the IR page of the SEGA SAMMY HOLDINGS web site, we post comprehensive, reliable information for shareholders and investors promptly. This includes timely disclosures as well as financial and business results figures in Excel format. IR page of the SEGA SAMMY HOLDINGS web site http://www.segasammy.co.jp/english/ir/ INDIVIDUAL INVESTORS Web Site Page for Individual Investors A dedicated web site page, For Individual Investors, and other pages provide an easy-to-follow introduction to the Group s business lines. Meanwhile, SEGA SAMMY Monthly Report features the latest information on products and services (Japanese only). For Individual Investors web site page http://www.segasammy.co.jp/english/ir/individual/ Business Reports Every six months, SEGA SAMMY REPORT updates our shareholders on business results and topics. 214 summer SEGA SAMMY REPORT P1 P3 P9 P5 Review of Activities Launch of pachinko and pachislot P12 P13 Business Report for the fiscal year ended March 31, 214 GENERAL STAKEHOLDERS SEGA SAMMY Group CSR Report 214 SEGA SAMMY Group CSR Report 214 details the Group s wide-ranging corporate social responsibility (CSR) activities. Also, our CSR-related web site page, Social Responsibility, carries the latest reports on our CSR activities. Social Responsibility web site page http://www.segasammy.co.jp/english/pr/commu/ SEGA SAMMY HOLDINGS

History 195 1951 Founded 196 196 Incorporated (Company name: Nihon Goraku Bussan Co., Ltd.) 1964 Started production of amusement arcade machines. 1965 Started operation of amusement centers. Changed company name to SEGA ENTERPRISES LTD. 197 1975 Established Sammy Industry Co., Ltd. 1978 Began game machine development. 198 1983 Launched SG-1 8-bit home video game platform. 1982 Began marketing of pachislot machines. 1985 Launched Hang On, the world s first force feedback game. Launched UFO Catcher. 1986 Registered stock on over-the-counter (OTC) market. 1988 Listed stock on the second section of the Tokyo Stock Exchange (TSE). Launched Mega Drive 16-bit home video game platform. 1989 Began sales of Aladdin single-bonus hitter pachislot machine. 199 199 Listed stock on the first section of the TSE. Launched R-36, the world s first amusement arcade machine that could rotate 36 degrees in all directions. 1991 Launched first title in the Sonic the Hedgehog series. 1991 Moved head office to Toshima-ku, Tokyo. 1993 Launched Virtua Fighter, the world s first amusement arcade 3D computer graphics fighting game. 1994 Launched SEGA Saturn 32-bit home video game platform. 1995 Began sales of pachinko machines. 1995 Launched Print Club with ATLUS Co., Ltd. 1997 Changed company name to Sammy Corporation. 1996 Opened TOKYO JOYPOLIS rooftop theme park in Tokyo s Odaiba area. 1998 Launched Dreamcast home video game platform. 1999 Registered stock on OTC market. Launched GeGeGe No Kitaro, the first pachislot machine equipped with an LCD. 2 2 Changed company name to SEGA CORPORATION. 2 Made RODEO Co., Ltd. (formerly Barcrest Co., Ltd.), a subsidiary. 21 Listed stock on the first section of the TSE. Completed Kawagoe Factory. 23 Launched The King of Beetles MUSHIKING kids card game. 23 Launched Hokuto No Ken pachislot machine, which set a new record for unit sales. UFO Catcher SEGA Aladdin pachislot machine Sammy Sonic the Hedgehog SEGA 24 Established SEGA SAMMY HOLDINGS INC. 25 Acquired all outstanding shares of The Creative Assembly Ltd. (SEGA). 26 Made SPORTS INTERACTIVE Ltd. a wholly owned subsidiary (SEGA). Entered strategic business alliance with Sanrio Company, Ltd. (SEGA SAMMY HOLDINGS). 27 Made TAIYO ELEC Co., Ltd., a subsidiary (Sammy). 28 Reached agreement with Sanrio Company, Ltd., to jointly develop new characters (SEGA SAMMY HOLDINGS). 29 Made GINZA CORPORATION a subsidiary (Sammy). Established SEGA SAMMY VISUAL ENTERTAINMENT INC.* (SEGA SAMMY HOLDINGS). 21 21 Made Sammy NetWorks Co., Ltd., SEGA TOYS CO., LTD., and TMS ENTERTAINMENT, LTD., wholly owned subsidiaries (SEGA SAMMY HOLDINGS). Retired 17 million shares of treasury stock (SEGA SAMMY HOLDINGS). 211 Made TAIYO ELEC Co., Ltd., a wholly owned subsidiary (SEGA SAMMY HOLDINGS). 212 Made Phoenix Resort Co., Ltd., a wholly owned subsidiary (SEGA SAMMY HOLDINGS). Established joint venture PARADISE SEGASAMMY Co., Ltd., with the Paradise Group of South Korea (SEGA SAMMY HOLDINGS). Established SEGA Networks, Ltd., through divestiture from SEGA (SEGA). Hokuto No Ken pachislot machine Buronson & Tetsuo Hara Sammy Phoenix Seagaia Resort 213 Participated in project to develop Centum City, a multi-project urban development area (SEGA SAMMY HOLDINGS). Acquired North American developer Relic Entertainment Inc. and intellectual properties related to titles under development (SEGA). Acquired casino facility, Paradise Casino Incheon, through PARADISE SEGA SAMMY (SEGA SAMMY HOLDINGS). Assumed Index Corporation s game business and contents and solutions business (SEGA). Established SEGA SAMMY CREATION INC., which develops, manufactures, and sells casino machines (SEGA SAMMY HOLDINGS). 214 Executed company split to establish Index Corporation s game business as ATLUS. CO., LTD. (SEGA). A rendering of the Incheon project * Currently MARZA ANIMATION PLANET INC. ANNUAL REPORT 214 1

the FACTS Summary of the SEGA SAMMY Group The SEGA SAMMY Group is a comprehensive entertainment company that provides new types of gameplay in a broad array of areas, from pachislot and pachinko machines to amusement arcade machines, amusement center operations, game content, toys, and animation. SEGA SAMMY HOLDINGS INC. Date of Establishment October 1, 24 Capital Total Shares Issued and Outstanding 29.9 billion 266,229,476 shares Number of Shareholders 89,771 Number of Employees 7,472 (consolidated) As of March 31, 214 Pachislot SOUTEN-NO-KEN 2 Tetsuo Hara & Buronson / NSP21, Approved No. YKU-127 Sammy Pachislot and Pachinko Machine Business SEGA SAMMY s dramatic progress worldwide SEGA SAMMY blue success and growth SEGA SAMMY green stability and permanence The Group Logo The logo symbolizes the creation of synergies by intertwining two renderings of the initial letter of both company names, the letter S, in the blue and green corporate colors of SEGA and Sammy. The curving lines linking SEGA and Sammy represent the Earth, simultaneously expressing the companies solidarity and the Group s determination to develop globally. This business segment comprises the pachislot machine business, which boasts outstanding brand power, and the pachinko machine business, which is building brand power by strengthening developmental capabilities. The business segment pursues a multibrand strategy based on Sammy Corporation, TAIYO ELEC Co., Ltd., RODEO Co., Ltd., and GINZA CORPORATION. The pachislot machine business aims to maintain its leading market share, while the pachinko machine business aims to claim a leading market share in the medium term. To these ends, the business segment will hone the competitiveness of the products that its market-driven developmental system creates and hone its product supply system for capturing sales opportunities reliably and its balanced product portfolio. Net Sales / Operating Income Net Sales / Operating Income 5 25 4 395.5 378. 2 212.1 181.8 321.4 3 15 142.2 2 1 71. 1 58.3 19. 38.5 5 23.5 45.2 235 212 213 214 212 213 214 Net sales Operating income FY Net sales Operating income FY 2 SEGA SAMMY HOLDINGS

Orbi Yokohama SEGA Other Businesses CHAIN CHRONICLE Kizuna no Shintairiku SEGA / SEGA Networks With our sights set on establishing integrated resorts including casinos in Japan, we are developing a resort complex in Japan and integrated resorts including casinos and a resort complex overseas. In South Korea, to garner casino management know-how we are participating in projects to develop integrated resorts including casinos through a joint venture with the Paradise Group. WORLD CLUB Champion Football series SEGA Panini S.p.A. All Rights Reserved The game is made by SEGA in association with Panini. PHANTASY STAR ONLINE 2 SEGA A rendering of the Incheon project Amusement Machine Sales Business Amusement Center Operations Consumer Business As a pioneer in amusement arcade machines, this business segment has created numerous world-first and industry-first products and thereby contributed to the industry s development. Furthermore, it is promoting the introduction of a revenue-sharing business model and other business models that reduce amusement center operators initial investment burden or expand the player base to include such groups as families and thereby help stabilize the Group s earnings. Also, the business segment is optimizing management resources by allocating them to the digital game area. In this business segment, we are revamping our portfolio of amusement centers continuously while strengthening their operational capabilities. At the same time, we are developing new amusement facilities that go beyond the boundaries of traditional amusement centers by opening more amusement centers for families in shopping centers and by opening amusement centers integrated with restaurants and other business formats. Also, we plan to develop theme park-type amusement centers, such as Orbi Yokohama, overseas through licensing out. This business segment comprises the game content business, the toy sales business, and the animation business. The game content business is focusing management resource deployment to rapidly strengthen the digital game area, which centers on SEGA Networks, Ltd. Meanwhile, in the toy sales business, SEGA TOYS CO., LTD., is building a unique position through the development of edutainment toys and products for adults. In the animation business, TMS ENTERTAINMENT, LTD., is generating steady earnings by taking advantage of rich animation assets. Furthermore, MARZA ANIMATION PLANET INC. is producing computer graphics (CG) animation. Net Sales / Operating Income (Loss) Net Sales / Operating Income Net Sales / Operating Income (Loss) 98.8 5 4 49.9 39.1 38.6 5 4 44.6 42.7 43.2 1 85.6 83.8 3 3 5 2 2 2. 1 7.4.7 1.9 1 15.1 1.2.3 1.1 1 212 213 214 212 213 214 5 212 213 214 Net sales Operating income (loss) FY Net sales Operating income FY Net sales Operating income (loss) FY ANNUAL REPORT 214 3

the FACTS Pachinko and Pachislot The Basics What Are Pachinko and Pachislot? Pachinko machines trace their origins to bagatelle boards, imported to Japan almost a century ago, in the 192s. In the 193s, the first pachinko hall opened for business. The prototype of modern pachinko machines, the Masamura Gauge machine, appeared in 1949. Subsequently, pachinko machines evolved to reflect the preferences of Japanese players. Pachinko is a game in which players manipulate a handle in order to mechanically shoot steel pachinko balls with diameters of about 11mm onto a vertically positioned board studded with numerous pins. When the balls fall into certain devices or the jackpot mouth, additional pachinko balls are won. The gameplay is similar to pinball. The main difference is that in a pachinko machine the board is nearly vertical. Meanwhile, the roots of pachislot are said to be slot machines brought from the United States after the end of the Second World War. The 196s saw the emergence of slot machines requiring a certain level of playing skill because they incorporated buttons that allowed players to stop the reels spinning. Subsequently, these machines were upgraded to the current box-cabinets and spread to pachinko halls throughout Japan. The functions and gameplay of pachinko and pachislot machines have continued to evolve, creating a uniquely Japanese form of entertainment. Today, machines continue to entertain fans through varied, dynamic staging based on LCDs and a range of other electronic components. The History of Pachinko and Pachislot Pachinko Pachislot 192s Bagatelle boards arrive in Japan from overseas. 193s First pachinko hall opens for business in Nagoya. 194s Prototype of modern machines, Masamura Gauge appears. Entertainment Establishments Control Law enforced, pachinko halls begin operating under license. 195s Pachinko machine manufacturers industry association, Nikkoso, established. First pachinko machines with Yakumono appear. 196s Machines with tulip-shaped devices appear. Large slot machines imported to Japan. 197s Electric pachinko machines appear. 198s Pachinko machines with digital displays, digipachi, appear. Pachislot machine manufacturers industry association, Nichidenkyo, established. Box-cabinets appear and spread rapidly. 199s 1991 Pachinko machines with LCDs appear. 1992 CR machines compatible with prepaid cards appear. First tie-up pachinko machine appears. No. 2 through No. 4 pachislot machines appear. 2s 24 Revised Entertainment Establishments Control Law enforced. New-format machines appear. Games diversify with appearance of slot machines requiring a certain level of playing skill, CT machines, multi-line, and large-jackpot machines. 24 Revised Entertainment Establishments Control Law enforced. No. 5 pachislot machines appear. Pachinko Machine Boards and Frames The frame is the cabinet part of a pachinko machine and has attached to it a handle, a glass frame unit, and speakers. Also, the frame physically controls the shooting and paying out of pachinko balls. Meanwhile, the board comprises LCDs, Yakumono, and numerous pins. The board incorporates electronic components, such as boards and sensors that control gameplay, including images and win chances presented by LCDs, and payouts. Because frames can be used continuously for certain periods, pachinko hall operators can introduce new pachinko machines by purchasing boards and simply attaching them to frames already installed at pachinko halls. The price of a pachinko board is less than that of an entire machine (a frame and a board), which enables pachinko hall operators to lighten their investment burden. For manufacturers, sales of pachinko boards provide higher margins than sales of entire machines and help maintain market share. Therefore, board sales benefit manufacturers as well as pachinko hall operators. Frame Boards New pachinko machines can be introduced by simply attaching boards to frames Pachinko CR Bakemonogatari Nisioisin / Kodansha, Aniplex Inc., SHAFT INC. Sammy Pachinko CR Hokuto No Ken 5 Hyakuretsu Buronson & Tetsuo Hara / NSP1983, Approved No. YHB-17 Sammy 4 SEGA SAMMY HOLDINGS

How to Play Pachinko Step 1 Rent balls After deciding which machine to play, the player rents special balls and puts them into the machine s upper tray. Step 2 Shoot balls Turning the handle on the bottom right shoots the balls. For most machines, when a ball enters the start hole underneath the LCD, the machine gives the player a chance to win a jackpot. Therefore, player uses the handle to adjust the impetus of the balls so that as many as possible enter the start hole. Step 3 If the player hits the jackpot If the LCD screen shows the same three figures (numbers) in a line, the player wins the jackpot. When the player wins the jackpot, the jackpot mouth in the lower part of the machine opens, and the player continues shooting balls. If a large number of balls fill the lower tray, the player can use the ball remover to transfer the balls to a box. 1 Handle 2 Start hole 3 Jackpot mouth 4 LCD 5 Upper tray 6 Lower tray 7 Ball remover Pachinko CR Bakemonogatari Nisioisin / Kodansha, Aniplex Inc., SHAFT INC. Sammy 4 2 5 6 7 5 1 6 2 3 4 3 71 How to Play Pachislot Step 1 Rent medals After deciding which machine to play, the player rents special medals. 11 Step 2 Enter medals, spin the reels The player puts three or more medals into the machine s medal 5 slot and pushes the lever to spin the reels. Step 3 Halt the reels 1 Medal slot 2 Credit display 3 Bet button 4 Lever 3 4 2 6 7 1 The player halts the reels by using the stop buttons on the front of the machine cabinet. 5 Main reels 6 Stop buttons 7 Payout display 1 8 Medal discharge Step 4 Depending on the figures, the halted reels show If the reels show the same three figures in a line, depending on the figures, the player can either spin the reels again, receive a small payout of a set number of medals, or begin a jackpot bonus game. 9 Tray for receiving medals 1 Panel 11 LCD Pachislot SOUTEN-NO-KEN 2 Tetsuo Hara & Buronson / NSP21, Approved No. YKU-127 Sammy 9 8 ANNUAL REPORT 214 5

the FACTS Size and Competitive Conditions of Pachinko and Pachislot Machine Markets This section focuses on the structures of the highly distinctive markets for pachinko and pachislot machines and the regulatory environments of these markets. Market Scale As one of Japan s flagship leisure industries, pachinko and pachislot claims a major share of the country s leisure market. Comprising the ball and token rental fees that the pachinko halls charge, this market accounts for roughly 28.9% of the leisure market, revenues of 18.8 trillion* 1, and 9.7 million players* 1. In the pachinko and pachislot machine manufacturing industry, machine sales are worth approximately 1. trillion* 2. Of this amount, the pachinko machine market represents 56.3%, or 69.9 billion* 2, and the pachislot machine market 43.7%, or 473.3 billion* 2. The increasingly advanced technology used for machines is broadening the range of industries involved in the pachinko and pachislot industry. These include manufacturers of components, such as LCDs, light-emitting diodes (LEDs), and sensors, and manufacturers of peripheral equipment for the machines, who have developed in step with pachinko halls growing automation. *1 213 Source: White Paper on Leisure Industry 214, Japan Productivity Center *2 Fiscal 213. Source: Yano Research Institute Ltd. Shares of Pachinko and Pachislot in Japan s Leisure Market Japan s Leisure Market* 3 65.2 trillion % Trillions of yen Games / Publicly operated sports / Eating and drinking 37.2 24.2 Pachinko and pachislot * 4 28.9 18.8 Hobbies 12.5 8.1 Tourism 15.4 1. Sports 6. 3.9 Source: White Paper on Leisure Industry 214, Japan Productivity Center *3 213 *4 Total amounts of hall ball and token rentals Regulatory Environment Before launching a machine, manufacturers are required to navigate an approval process in accordance with the Entertainment Establishments Control Law. First, they must file an application for prototype testing with the Security Communications Association and acquire certification that elements such as materials, functions, and gameplay are in conformance with the law. Next, the machines are verified by the Public Safety Commission in each prefecture. Only then can they be supplied to pachinko halls. Before commencing operations, the pachinko hall operators must acquire approval from district police stations. Approval Process for Pachinko and Pachislot Machines Pachinko and Pachislot Machine Manufacturers 1. Application for prototype testing 2. Issuance of certification for prototype testing 3. Application for prototype testing 4. Issuance of certification of prototype testing 5. Contract / Delivery Security Communications Association Public Safety Commission in Each Prefecture Pachinko Halls 6. Application for approval 7. Approval District Police Station 8. Commencement of operations Changes in Market Conditions Due to Regulatory Reform The Entertainment Establishments Control Law and the internal regulations of industry bodies have been revised frequently with a view to the sound development of the industry. Each revision has affected the pachinko and pachislot machine market. Changes in demand due to changes in gameplay as well as pachinko and pachislot machine manufacturers innovations in response to changes have created a market in which sales of pachinko and pachislot machines go through cyclical peaks and troughs. To secure stable earnings in a market in which demand fluctuates repeatedly over short periods, pachinko and pachislot machine manufacturers need to heighten their pachinko and pachislot machines brand power. Cyclically Changing Market Conditions Thousands of units 5, 4, 3, 2, 1, 1996 Regulatory revision Shrinking of the pachinko machine market Triggers expansion of the pachislot machine market 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 Pachinko machine unit sales Source: Yano Research Institute Ltd. 24 Regulatory revision Pachinko machine market recovers Pachislot machine market decelerates dramatically Pachinko machine market decelerates Pachislot machine market recovers Pachislot machine unit sales FY (Settlement dates from July to June) 6 SEGA SAMMY HOLDINGS

Strengthening Oligopoly among Leading Titles and Companies In the pachinko machine market, pachinko machines are sold by 35* 5 pachinko machine manufacturers affiliated with Nikkoso, which is the pachinko machine manufacturers industry association. In the pachislot machine market, pachislot machines are sold by approximately 7 companies, comprising 26* 5 pachislot machine manufacturers affiliated with Nichidenkyo, which is the pachislot machine manufacturers industry association; Nikkoso-affiliated manufacturers that handle pachislot machines; and non-affiliated manufacturers. Due to the decline in the number of players since the July 24 revision of regulations pertaining to the Entertainment Establishments Control Law, pachinko hall operators have been facing challenging business conditions. As a result, a pronounced bias has emerged in market demand toward titles and manufacturers that promise reliable returns on investment. Consequently, recent years have seen the development of an increasingly well-defined oligopoly comprising titles and brands with solid utilization time track records and companies with robust development capabilities and abundant funds for investment. *5 Source: Yano Research Institute Ltd. *6 Due to the large number of organizations and companies, the number of pachislot machine manufacturers is the Group s estimate. Pachinko and Pachislot Machine Market Scale* 7 Total 1,83.2 billion Pachinko machines 69.9 Pachislot machines 473.3 Source: Yano Research Institute Ltd. *7 Fiscal 213 (settlement dates from July to June) Approx. 7 pachislot machine manufacturers 35 pachinko machine manufacturers Top five companies 66.1% Top five companies 61.5% Key Indicators for Analysis of Conditions in the Pachinko and Pachislot Machine Markets 1. Annual Turnover Annual turnover is a benchmark of pachinko hall operators financial position, which affects pachinko and pachislot machine sales directly. Annual turnover shows how many times pachinko hall operators replace machines during one year. When pachinko hall operators have extra capital investment capacity, they actively replace existing machines with new ones to attract customers and annual turnover rises. If they have less extra capital, annual turnover declines. 2. Utilization Time Utilization time is the number of hours per business day that pachinko or pachislot machines are utilized. Normally, it declines gradually after a machine is installed. A slower-than-average decline shows the degree to which a machine has earned players long-term support. Because the utilization time has a direct bearing on pachinko hall operators sales, the extent to which pachinko and pachislot machine manufacturers have titles with favorable utilization times affects their brand appeal and earnings. Annual turnover = Annual pachinko and pachislot machine unit sales Pachinko and pachislot machine installations Shows the number of times pachinko hall operators replace machines during one year and their capital investment appetite Up Extra capital investment capacity Annual turnover Down Extra capital investment capacity Utilization rate = Increasing Decreasing The number of hours per business day that pachinko or pachislot machines are utilized Shows players support of pachinko and pachislot machines ANNUAL REPORT 214 7

the FACTS Market Conditions for Each Business Pachinko and Pachislot Machine Market Long-Term Trends From the 199s to 25 After peaking in 1995, the number of players began trending downward due to casual players leaving the market because an increasing number of machines featured more complicated gameplay or strong gambling elements. As a result, the pachinko and pachislot machine market* 1 entered a period of long-term decline. Fiercer competition among pachinko hall operators to attract players led to a shakeout of small pachinko hall operators with less financial muscle. Consequently, the number of pachinko halls continued to decrease. Meanwhile, unit sales of pachinko and pachislot machines remained solid, thanks to heavy demand from pachinko hall operators as they sought to secure players by replacing existing machines with new models. Also, the market generated higher revenue levels as the prices of machines continued to rise due to the incorporation of such features as large-size LCDs. Following the July 24 Regulatory Revision 1. Pachislot Machine Sales Slump, Pachinko Machine Sales Rise (from 26 to mid-29) Focused on controlling excessive gambling elements, the regulatory revision of July 24 narrowed the scope of pachislot machines gameplay. After the interim measures period* 2 ended in fall 27, pachinko hall operators proceeded to replace pachislot machines with those compliant with the new regulations. As a result, players departure from the market accelerated due to the major change in gameplay. In response, pachinko hall operators actively replaced pachislot machines with pachinko machines, which were recording comparatively steady utilization times* 3. This resulted in an upturn in installations of pachinko machines. Annual pachinko machine unit sales plateaued because of softening annual turnover, which resulted from the tough business conditions pachinko hall operators were facing. However, the pachinko machine market continued to expand on a revenue basis. This growth was attributable to a rise in prices for machines, stemming from the increased use of advanced technologies and hikes in copyright fees for major intellectual properties. Faced with deteriorating profitability due to the higher investment burden of machine replacement and declining player numbers, pachinko hall operators sought reliable returns by introducing machines that promised favorable utilization times. This caused the market to polarize further into two groups: leading manufacturers and other manufacturers. *1 The total of pachinko hall operators ball rental fees and token rental fees *2 Aiming to mitigate a sudden change of conditions and investment burden of pachinko hall operators, the regulatory revision of July 24 included a three-year interim measures period for replacing old machines with new-format machines. *3 The number of hours per business day that pachinko or pachislot machines are utilized Pachinko and Pachislot Player Numbers and Market Size Thousands Trillions of yen 3, 2, 1, 6 4 2 1995 2 25 21 Number of pachinko and pachislot players (left) CY Pachinko and pachislot market size (right) Source: White Paper on Leisure Industry 214, Japan Productivity Center Pachinko and Pachislot Machines Unit Sales and Market Size Thousands of units 5, 4, 3, 2, 1, 1, 8 6 4 2 22 23 24 25 26 27 28 29 21 211 212 213 Pachinko machine unit sales (left) Pachislot machine unit sales (left) Pachinko machine market size (right) Pachislot machine market size (right) FY Source: Yano Research Institute Ltd. (Settlement dates from July to June) Pachinko and Pachislot Installations Thousands of units 4, 3, 2, 1, 22 23 24 25 26 27 28 29 21 211 212 213 Pachinko machine installations Pachislot machine installations CY Source: National Police Agency 8 SEGA SAMMY HOLDINGS

2. Pachinko Machine Sales Decelerate, Pachislot Machine Sales Recover (since mid-29) Since 27, casual players began leaving the pachinko market due to the increasing installation of pachinko machines with a strong gambling element, known as Max-type machines, which promised a comparatively early return on investment. Pachinko hall operators adopted a strategy of lowering ball rental fees significantly, while manufacturers introduced pachinko machines with weaker gambling elements in an effort to broaden the player base. Although lowering ball rental fees increased utilization times, it led to a decline in sales per machine for pachinko hall operators. As a result, the business results of pachinko hall operators worsened, further reducing their investment appetite. Consequently, the shift in demand toward pachislot machines promising comparatively high utilization, the bias in demand toward brandname titles highly likely to provide reliable returns on investments, and the decrease in the number of times pachinko hall operators replace machines during one year (annual turnover* 4 ) became more pronounced. These trends have continued. A market is forming in which only several leading companies will be able to survive and reap the benefits. These companies will survive because they have the developmental capabilities and financial foundations to continuously provide titles promising high utilization and cost-competitive, profitable organizations. *4 Annual turnover = Annual pachinko and pachislot machine unit sales Pachinko and pachislot machine installations Annual Turnover and Pachinko Hall Numbers Times 2. 1.5 1..5 22 23 24 25 26 27 28 29 21 211 212 213 Thousands of halls Pachinko machine annual turnover (left) Pachislot machine annual turnover (left) FY Pachinko hall numbers (right) (Settlement dates from July to June) Source: The Company has calculated annual turnover based on data from the National Police Agency and Yano Research Institute Ltd. Pachinko hall numbers are from the National Police Agency. Utilization Time Hours 6.5 6. 5.5 5. 4.5 2 15 1 5 Young Adults Interest in Pachinko and Pachislot Declining as Entertainment Options Diversify Since 29, the decrease in the pachinko and pachislot player population has been accelerating. In particular, the decline in interest in pachinko and pachislot among young adults has been marked. In the period from 29 to 213, this group shrank significantly, with the percentage of men under 2 playing pachinko and pachislot falling from 11.4% to.3% and the percentage of men in their twenties playing pachinko and pachislot falling from 24.5% to 9.%. The main cause of this trend was the rapid popularization of smart devices and the expansion of the game app market, which coincided with this period. The pachinko and pachislot machine industry is competing for players with many different types of entertainment. Therefore, initiatives are required to develop a wide range of player groups including young adults. Pachinko and pachislot machine manufacturers common task is to invigorate the market by developing and rolling out machines that are as innovative as possible. 4. 26 25 2627 27 28 28 29 21 21 211 211212 212 213 Pachinko machines Pachislot machines * Number of hours per business day that pachinko or pachislot machines are utilized Source: Daikoku Denki Co., Ltd., DK-SIS data Pachinko and Pachislot Players: Breakdown by Gender and Age Group % 1 8 6 4 2 Men Women 29 213 29 213 Under 2 2s 3s and above CY CY Source: White Paper on Leisure Industry 29, White Paper on Leisure Industry 214 ANNUAL REPORT 214 9

the FACTS Market Conditions for Each Business Amusement Market (Amusement arcade machines / Amusement center operations) Challenging Conditions Continue in the Amusement Center Operations Market Due to Change in Leisure Activities The amusement center operations market has been contracting since fiscal 27. During the six years between fiscal 27 and fiscal 212, it shrank approximately 3%. Since fiscal 27, existing amusement centers sales have been declining year on year. Furthermore, there are almost 3% fewer amusement centers than there were in fiscal 27. On the other hand, the market is approaching an optimal size. As a result of amusement center operators closing unprofitable amusement centers and increasing operational efficiency, sales per amusement center and sales per machine have risen slightly. Breaking down performance, while the sales of amusement centers in shopping centers and bowling alleys are steady, traditional amusement centers sales are decreasing significantly. Challenging conditions are likely to continue in the amusement center operations market as the popularization of smartphones and other factors change leisure activities. The industry faces the common task of introducing new products efficiently to invigorate amusement centers and extend the player base to include families and other player groups. Another important task is responding to the increase in consumption tax. Invigorating Amusement Center Operations Market is a Task for Amusement Arcade Machine Sales Market From fiscal 27, the amusement arcade machine sales market began trending downward in step with the contraction of the amusement center operations market, which affects it directly. Amusement center operators capital investment bottomed out in fiscal 29. In fiscal 212, however, it decreased 3.1% year on year. In recent years, amusement arcade machine manufacturers have been marketing products and promoting business models that reduce the initial investment burden for amusement center operators with limited cash flows, encourage the introduction of new products, and invigorate amusement centers. Revenue-sharing business models are one such initiative. Under these models, manufacturers sell amusement arcade machines at low prices and share revenues from machine utilization with amusement center operators. The spread of revenue-sharing business models in fiscal 212 contributed to contraction of the amusement arcade machine sales market. Furthermore, the sale of CVT kits that enable amusement center operators to upgrade content by simply replacing boards or downloading new content has become widespread. In addition, a trend is emerging toward business models based on free-to-play (F2P) games. These business models aim to broaden the player base by attracting customer groups that do not tend to visit amusement centers, such as families and women. Revenues from Amusement Center Operations / YOY Comparison of Sales at Existing Amusement Centers % 8 6 4 2 25 26 27 28 29 21 211 212 Revenues from amusement center operations (left) FY YOY comparison of sales at existing amusement centers (right) Source: JAIA, Amusement Industry Survey 212 Amusement Arcade Machine Sales* 25 2 15 1 5 25 26 27 28 29 21 211 212 Source: JAIA, Amusement Industry Survey 212 * Total domestic sales and exports Revenues from Content Fees / Revenue-Sharing Business Models 25 2 15 1 5 27 28 29 21 211 212 Source: JAIA, Amusement Industry Survey 212 FY FY 11 1 9 8 All market data in the text is from JAIA, Amusement Industry Survey 212. 1 SEGA SAMMY HOLDINGS

Game Content Market Shift to Digital Downloads Accelerates Worldwide In 213, sales in the global game content market* 1, comprising packaged game software and online game content rose 9.1% year on year, to approximately 6.3 trillion* 2. By region, the market recorded growth of 4.% in Asia (Japan, China, and South Korea) and decreases of.4% in the United States and 13.% in Europe year on year. In China, PC online games spurred growth, while in Japan and South Korea mobile game apps were growth drivers. Consequently, Asia is developing into the world s largest market. Packaged game software continued on a downward trend. Meanwhile, online game content expanded to 4.6 trillion, accounting for approximately 7% of the game content market. Due to the spread of such digital devices as smartphones and tablets, game software s shift towards digital downloads is becoming a worldwide trend. As for packaged game software, with popularity concentrating on certain well-known titles, major publishers oligopoly continued to strengthen. However, the market for packaged game software for home video game consoles is showing signs of recovery. These include favorable sales in Europe and North America of new-generation home video game consoles equipped with capabilities for digital downloads, content micropayments, social game features such as live video of gameplay action, and cloud gaming services. *1 Total for mobile game apps, PC online games, and home video game software downloads. *2 Source: Famitsu Game White Paper 214 Estimated Value of Global Game Content Market Trillions of yen 7 6.3 trillion 5.8 trillion 6 4.9 trillion 5 4 3 2 1 211 212 213 Source: Famitsu Game White Paper 214 CY Major Hit Titles Drive Rapid Expansion of Online Game Content Market in Japan In 213, Japan s market for online game content with network connectivity, which includes content for home video game consoles, handheld game terminals, and PCs and game apps for smart devices, grew rapidly, increasing 39.2% year on year, to 735.8 billion* 3. In this market, major hit titles drove sales of digital game content for smart devices and SNS, which rose 57.4%, to 66.9 billion* 3, and claimed 8% of the market. For home video game consoles in 213, although packaged game software continued to shrink, digital downloads were up 9.6%* 3 year on year. In 213, the transfer of packaged game software intellectual properties to online game content gained momentum. Other trends included the offering of new play styles by linking such PCs, handheld game terminals, and other devices and the full-fledged entry into Japan s market of major hit game apps from overseas. In 214, the online game content market is expected to expand and surpass 8 billion as the player base widens with the continuing spread of smart devices, the penetration of F2P business models that provide basic play for free and generate return on investment through charges for additional items within games, and an increase in digital downloads for home video game consoles. *3 Source: f-ism Japan s Market for Game Content with Network Connectivity 1, 8 6 4 2 28 29 21 211 212 213 214 215 Home video game consoles PCs Feature phones Smart devices + SNS Source: f-ism Forecast Forecast ANNUAL REPORT 214 11

the FACTS Market Conditions for Each Business Requirements for Winning amid Fiercer Competition Digital game content for smart devices and SNS has grown dramatically. Currently, competition in this area is moving into a new phase. In recent years, the increase in companies in the area has created a market with a large amount of homogeneous content. As a result, player demand is shifting toward absorbing, graphic-rich video games that exploit the processing capabilities of smartphones and high-speed mobile broadband. Against this backdrop, native apps have replaced browser apps as the market s mainstay category. The main type of app until recently, browser apps are operated through browsers and processed by external servers, while native apps are processed by terminals after installation and are suited to rich content. In the native app area, several companies that entered the area early have established advantageous positions. However, competition is intensifying due to the large number of companies in the market, such as companies with strong track records in browser apps and major game publishers. The number of apps is rising significantly, and apps are becoming increasingly high-end. At the same time, a shortage of developmental personnel and burgeoning development expenses have become a problem for the entire industry. Consequently, competitive conditions in the digital game content market are gradually beginning to favor companies with accumulated developmental assets, such as intellectual properties and developmental personnel; robust financial foundations able to absorb developmental risk; and systems and fee-charging know-how that attract players to newly developed titles reliably. Average Monthly Revenues per Player Yen 6, 5, 4, 3, 2, 1, 27 28 29 21 211 212 Average monthly revenues per player from fixed-fee games CY Average monthly revenues per player from individual-item-fee games Source: JOGA Online Game Market Research Report 213 Toy and Animation Markets Download Services Expand in Animation Market In fiscal 212, Japan s toy market (excluding home video game consoles and software), decreased 2.8% year on year, to 316.1 billion, due to the weakening momentum of toys for boys and trading card games, which are market drivers, and lackluster performances in other product categories overall. In fiscal 213, the toy market is projected to remain approximately unchanged year on year and reach 314.5 billion on a manufacturers shipment basis. In 212, the animation market recorded stable box-office revenues from mainstay animation series. In addition, several Japanese animation titles drove the market by posting box-office revenues above the 4 billion barrier. As a result, the market grew 4.2% compared with the previous fiscal year, to 233. billion. Television animation revenues edged up, while video animation revenues declined. Meanwhile, the animation download market for homes and smart devices is expanding significantly. This market is expected to grow further as communication environments advance and flat rate services enabling sharing between multiple devices spread. Toy Market in Japan* (excluding home video game consoles and software) % 4 3 2 1 Animation Market in Japan 25 25 26 27 28 29 21 211 212 213 Size of toy market in Japan (left) * Shipment basis Source: Yano Research Institute Ltd. Year on year (right) Forecast FY 15 1 95 9 2 15 1 5 25 26 27 28 29 21 211 212 Source: Media Development Research Institute Inc. CY 12 SEGA SAMMY HOLDINGS

Market Data Number of Pachinko Halls Number of halls CY 28 29 21 211 212 213 Number of pachinko halls with pachinko machines installed 11,8 11,722 11,576 11,392 11,178 1,873 Number of pachinko halls with only pachislot machines installed 1,137 93 93 931 971 1,2 Total 12,937 12,652 12,479 12,323 12,149 11,893 Source: National Police Agency. Number of pachinko halls with pachinko machines installed includes halls that combine installations of pachinko machines, pachislot machines, arrange-ball machines, and other machines. Pachislot Machine and Pachinko Machine Sales, Installed, and Market Scale CY / FY* 28 29 21 211 212 213 Pachislot machines Machine sales (units) 913,94 766,94 979,794 1,259,924 1,326,29 1,39,566 Machines installed (units) 1,448,773 1,347,176 1,39,492 1,474,838 1,549,319 1,62,148 Market scale (millions of yen) 247,86 225,869 286,7 375,54 429,974 473,342 Pachinko machines Machine sales (units) 3,339,146 3,332,984 2,9,286 2,63,76 2,494,695 2,48,72 Machines installed (units) 3,76,421 3,158,799 3,163,65 3,17,688 3,42,476 3,9,314 Market scale (millions of yen) 921,338 985,227 886,914 825,714 772,951 69,95 Sources: National Police Agency (machines installed) and Yano Research Institute Ltd. (machine sales and market scale) * Number of machines installed is on a calendar year basis. Number of machine sales and market scale information is on a fiscal year basis (settlement dates from July to June). Amusement Machine and Amusement Center Operations Markets FY 27 28 29 21 211 212 Net sales of amusement machines (millions of yen) 219,61 196,164 169,632 173,167 184,781 179,147 Revenues from amusement center operations (millions of yen) 678,99 573,14 54,271 495,767 487,5 469,95 Number of amusement centers* 22,723 21,688 19,213 18,638 18,114 16,991 Year-on-year comparison of sales at existing amusement centers (%) 92.2 89.7 88.2 97.3 96.8 95.3 Source: JAIA, Amusement Industry Survey 212 * The number of amusement centers is the total of category 8 centers and non-category 8 centers classified by the Entertainment Establishments Control Law. Global Shipment of Home Video Game Software CY 28 29 21 211 212 213 214 (Forecast) 215 (Forecast) Hardware 25.54 216.49 175.59 179.74 177.98 155.31 182.88 184.27 Software 332.43 326.41 318.17 274.64 271.21 253.66 254.67 255.19 Total 582.97 542.9 493.76 454.38 449.19 48.97 437.55 439.46 Source: f-ism Japan s Market for Game Content with Network Connectivity CY 28 29 21 211 212 213 Home video game consoles 17.2 2.2 21.8 28.5 34.2 37.5 PCs 82. 92. 92.2 88.7 89.5 86.1 Feature phones 89. 92. 85.4 51.2 19.2 5.3 Smart devices + SNS 5.5 29. 118.7 224.9 385.6 66.9 Total 193.7 233.2 318.1 393.3 528.5 735.8 Source: f-ism ANNUAL REPORT 214 13

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